China probe row adds to EU’s Green Deal woes

The EU’s plan to decarbonise its economy and achieve net zero emissions by 2050 was supposed to be Europe’s “man on the Moon” moment.

But four years after being announced, parts of the EU’s Green Deal have been watered down or delayed amid backlash from industry, farmers and companies that are facing high inflation and increased energy costs following Russia’s full-scale invasion of Ukraine.

Environment commissioner Virginijus Sinkevičius said the Green Deal was now passed its “glory age when there were streets full of people asking us to act on climate change”, as it hits the period when policies must be enforced.

Brussels’ latest move to launch an anti-subsidy probe against Chinese electric car manufacturers could further complicate the EU’s green transition if Beijing retaliates, given the bloc’s dependence on Chinese imports for many of its clean technologies such as solar panels, batteries and the rare earths needed for wind turbines and electric cars.

Several EU diplomats have warned that such antagonistic posturing could have unintended consequences and provoke a response from China, which has already applied export controls to gallium and germanium, key materials used in chip manufacturing.

Other diplomats questioned whether an anti-subsidy investigation would be effective in shielding European manufacturers from unfair competition.

“The Green Deal global race is on and it has to be a fair one. If not, it is legitimate that we defend our interests,” said Pascal Canfin, a liberal lawmaker close to French president Emmanuel Macron.

Competition from across the Atlantic is also dissuading investment in Europe’s fledgling green tech industry. Washington’s $390bn package of tax credits and subsidies adopted last year for companies pursuing clean technologies in the US has drawn praise from investors for prioritising funding over regulation.

Last week, when announcing the China anti-subsidy probe, European Commission president Ursula von der Leyen refocused her policy objectives for the remaining time before EU-wide elections in June on more industrial concerns.

The commission would set up a series of “clean transition dialogues” with companies, she said, with the “core aim . . . to support every sector in building its business model for the decarbonisation of industry”.

Her speech signalled a refocus on the Green Deal, which when she took office in 2019 was hailed as the largest and most ambitious green transition plan on any continent.

But policymakers and campaigners have noticed a slowdown in the revision or introduction of more than 70 pieces of legislation under the Green Deal, according to analysis by Canfin, who chairs the European parliament’s environment committee.

All it has amounted to, some politicians and executives say, is a series of targets that member states and companies will not be able to reach.

“So far, the Green Deal has been largely divorced from economic objectives, even though it was supposed to be the new growth strategy,” said Ann Mettler, Europe vice-president at Bill Gates’ Breakthrough Energy, a sustainability-focused venture capital firm.

“We now have a comprehensive regulatory framework in place, but for the time being it doesn’t amount to a business case for the transition.”

Inès Van Lierde, chair of Aegis Europe, the EU manufacturing industry body, said that the sector “firmly supported” the Green Deal, but “is extremely concerned about the noticeable deindustrialisation on the continent”.

With EU elections looming in June, agreements on newer proposals have become increasingly fractious. By Canfin’s estimates, around 20 per cent of the commission’s original proposals will not be adopted before the election.

Two of the six laws not yet proposed by the commission are likely to be severely watered down or shelved, according to officials with knowledge of Brussels’ plans, while a revision of the bloc’s main chemical regulation has been delayed.

In a bid to appeal to European industry, Von der Leyen has appointed Maroš Šefčovič, who previously served as the bloc’s energy commissioner speeding up the roll out of gas infrastructure, to take over as the EU’s Green Deal chief. Šefčovič will represent the commission’s policy at the UN this week.

However, national resistance to climate legislation is also on the rise.

Von der Leyen’s own political group, the centre-right European People’s party has made slashing the burden of climate regulation a key plank of their election messaging for next year.

Poland, which goes to the polls in October, is challenging three Green Deal regulations in the European Court of Justice, arguing that they threaten the country’s energy security and will worsen social inequality.

Warsaw is also holding out against an EU agreement to cut emissions from 55 per cent to 57 per cent compared with 1990 levels at the UN climate conference COP28 in December, according to diplomats involved in the talks.

Jos Delbeke, chair of climate policy at the European University Institute and former director-general of the commission’s climate arm, said given the scale of Brussels’ ambitions he was surprised that pushback against the bloc’s environmental agenda had not come sooner.

The EU’s climate targets “are profoundly changing its economic model, at least as far as energy and technology is concerned”, he added. “It is not entirely surprising that their implementation hits some road blocks.”